Basics of Corporate Finance

Current liabilities

The first group of accounts includes all current liabilities which the
company is obligated to pay within the next 90 days.

·ACCOUNTS PAYABLE ­ amount owed by the company for
materials they have purchased on credit
·NOTES PAYABLE ­ amount the company has borrowed from banks
in the form of short-term loans
·ACCRUED WAGES AND T AXES ­ for wages, the amount of wages
earned by the employees, but not yet paid by the company; for
taxes, the amount of taxes incurred by the business, but not yet
paid to the respective governments by the company
·OTHER CURRENT LIABILITIES ­ any other obligations that the
company is expected to pay in the short-term (usually around 90
days)

Long-term liabilities / equity

The company also has long-term sources of capital. These accounts
include:

· LONG - TERM DEBT ­ amount the company has borrowed in the
form of bonds sold to investors or banks
·PREFERRED STOCK ­ amount paid by investors to the company
wanting a priority claim on the assets of the company
·COMMON STOCK ­ amount paid to the company by investors in
exchange for a claim on the ownership of the company. Often, the
number of outstanding shares is included on this line.
·RETAINED EARNINGS ­ value of the assets of the company in
excess of the claims upon those assets (liabilities and
stockholders' ownership). This does not represent cash held in
the company.

The liability accounts are listed in the order in which they must be paid.
Accounts payable are generally due within 30 days; stockholders' equity
accounts represent ownership and never need to be paid off.